Goldman Sachs, Macquarie Research rule out rate hike by RBI, expects interest rates to ease in early 2009

Goldman Sachs in its latest report has ruled out any hike in interest rate by the RBI, considering the current tightness in liquidity condition and expected decline in the inflation by early 2009. As per the report, the current tight liquidity and slow growth, suggests that the RBI may use the statutory liquidity ratio (SLR) and the cash reserve ratio (CRR) to ease liquidity, hence any further hike by CRR is also ruled out. Further the investment major expects the RBI to have a rate cut in the January-March quarter of 2009, to spruce up growth, as the macro concern shifts from high inflation to falling growth. As per the report inflation is expected to drop considerably in early-2009, due to slowing demand and drop in commodity prices.

Macquarie research too expects the RBI to hold interest rate steady at present level at its next policy review on October 24. Macquarie also expects the RBI to cut interest rates in 2009 and the CRR for banks by around 200 bps. Earlier, Macquarie had earlier forecasted a 25 bps hike in the repo rate to 9.25%, but it had revised its forecast due to the global financial problems.